 Should Monetary Policy Be Used to Counteract Financial Imbalances?Jean Boivin (), Timothy Lane and Cesaire Meh Bank of Canada Review, 2010, vol. 2010, issue Summer, 23-36 Abstract: The authors examine whether monetary policy should and could do more to lean against financial imbalances (such as those associated with asset-price bubbles or unsustainable credit expansion) as they are building up, or whether its role should be limited to cleaning up the economic consequences as the imbalances unwind. Effective supervision and regulation are the first line of defence against financial imbalances. An important question is whether they should be the only one. The authors argue that the case for monetary policy to lean against financial imbalances depends on the sources of the shock or market failure and on the nature of the other regulatory instruments available. To the extent that financial imbalances are specific to a sector or market and that a well-targeted prudential tool is available, monetary policy might play a minor role in leaning against the imbalances. However, if the imbalances in a specific market can spill over to the entire economy and/or if the prudential tool is broad based, monetary policy is more likely to have a role to play. In such a case, there may be a need to coordinate the use of the two policy instruments. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bca:bcarev:v:2010:y:2010:i:summer10:p:23-36 Access Statistics for this article More articles in Bank of Canada Review from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC. |
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